Taking a property out of your company as a dividend: the three bills a distribution in specie can bring
Handing a property to a shareholder instead of cash looks like the simplest way to take it out of a company. It is simple to document and often expensive to do, because the tax code measures it at market value on both sides, whatever figure the board minutes use. Here is how a distribution in specie is taxed, a worked illustration, the stamp duty land tax catch when a mortgage travels with the property, and the questions to settle before the resolution.
What a distribution in specie is
A dividend is usually paid in cash. A distribution in specie, sometimes called a dividend in kind, is one satisfied by transferring an asset instead: the company declares a dividend and settles it by conveying a flat, a shop or a plot of land to the shareholder. It is common in family property companies when an owner wants a particular property in personal hands, when a company is being run down, or when shareholders are going separate ways. Three sets of rules apply to it, and they do not agree on the figure.
Company law measures it at book value
Section 845 of the Companies Act 2006 fixes the amount of a distribution of a non-cash asset by reference to the value at which the asset stands in the accounts, provided the company has profits available for distribution at the time. A flat carried at its GBP 200,000 cost can therefore be distributed as a GBP 200,000 dividend in company law terms, and the company needs distributable reserves to cover that figure, not the market value. Where the property is carried at a revalued figure, section 846 treats the unrealised part of that figure as realised for the purpose of this distribution, so the reserves test has to be worked through on the actual accounts. The directors still need proper authority, a board minute and relevant accounts that support the reserves.
The company is taxed as if it sold at market value
For the company, the transfer is a disposal. Section 17 of the Taxation of Chargeable Gains Act 1992 deems a disposal by way of distribution from a company in respect of shares to be made for a consideration equal to market value. The gain is chargeable to corporation tax in the ordinary way, even though no cash arrives to pay it.
The shareholder is taxed on market value too
HMRC's Company Taxation Manual, at CTM15200, explains that where a dividend in kind is declared at book value and the asset is worth more, the excess of market value over the declared amount is itself a distribution, under section 1020 of the Corporation Tax Act 2010 outside a group. The shareholder is therefore taxed on the full market value as dividend income: for 2026/27, 10.75 per cent in the basic rate band, 35.75 per cent in the higher rate band and 39.35 per cent above it, after a dividend allowance of GBP 500. The shareholder's base cost for a later sale is the market value at the date of receipt.
The stamp duty land tax catch: the mortgage
A distribution for which the shareholder gives nothing in return has no chargeable consideration, so no SDLT is due. The picture changes when the property carries a loan from a lender. Under paragraph 8 of Schedule 4 to the Finance Act 2003, the assumption of an existing debt is chargeable consideration, and HMRC read assumption widely: a new personal covenant by the shareholder, the company's release from its own covenant, or an indemnity all count. HMRC's guidance on taking property out of a company on a winding up confirms that where only the shareholders' own loans are secured on the property, no SDLT arises, and warns that where third-party debt is repaid just beforehand, section 75A, which can look through a series of connected steps, may still need to be considered. The figures that follow are illustrative. A shareholder who takes a flat subject to a GBP 150,000 mortgage, and already owns a home, pays SDLT at the residential rates including the 5 per cent surcharge on additional dwellings: 5 per cent on the first GBP 125,000 and 7 per cent on the next GBP 25,000, which is GBP 8,000 in all.
A worked illustration
The figures are illustrative. A company bought a flat in 2019 for GBP 200,000 and carries it at cost. It is now worth GBP 450,000 and has no mortgage, and the sole shareholder, already an additional rate taxpayer, wants it. The company declares a GBP 200,000 dividend in specie and transfers the flat. The company's gain is GBP 250,000, ignoring costs, with no indexation allowance on a 2019 purchase; at the 25 per cent main rate the corporation tax is GBP 62,500, and it must be paid from other cash. The shareholder is taxed on GBP 450,000 at 39.35 per cent, which is GBP 177,075, ignoring the dividend allowance. No SDLT arises, because nothing is given in return. The total tax is GBP 239,575, a little over 53 per cent of what the flat is worth, to move it from one owner to what is, in economic terms, the same owner.
The winding-up alternative, and its limit
If the company is being wound up, section 1030 of the Corporation Tax Act 2010 provides that a distribution made in respect of share capital in a winding up is not a distribution for corporation tax purposes. The shareholder is then within capital gains tax, at 18 or 24 per cent for 2026/27, on the excess of the value received over the base cost of the shares. The company's own gain still arises. And section 396B of the Income Tax (Trading and Other Income) Act 2005 can return the distribution to income tax where four conditions all apply: a shareholding of at least 5 per cent, a close company, the individual or a connected person carrying on the same or a similar trade or activity within two years of the distribution, and a main purpose of reducing income tax. A shareholder who takes the flat out on a liquidation and carries on letting it should expect the third condition to be examined, and the outcome to turn on the fourth.
Before the resolution is signed
Obtain a formal valuation at the date of transfer, because two taxes run off it. Check the reserves against the book value, or against the revalued figure if the accounts carry one, and record the resolution properly. Establish whether a lender's charge travels with the property and whether the lender will consent to the transfer at all. Work out the company's corporation tax before the property leaves, because the company will need cash to pay it. For a commercial building that has been opted to tax, take VAT advice as well, because a transfer for no consideration can still be a supply. Then set the total against the alternatives: keeping the property in the company, selling it there, or a winding up. A distribution in specie is sometimes the right answer. It is rarely the cheap one.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.